Recent Policy Studies

The FDA’s current protocols treat patient selection as a problem that the drug company must solve before the clinical trial begins or, to a limited extent, when it is in its very early phases. At best, this means that the drug is prescribed to many patients whom it fails to help or even harms during the trials, and to still more of the wrong patients after it’s licensed, until enough post-licensing data accumulates and reveals how to prescribe the drug more precisely. At worst, drugs that some patients desperately need don’t get licensed because the trials include too many of the wrong patients.

The U.S. corporate tax code is ripe for bipartisan reform—the U.S. has the highest corporate tax rate of any OECD country but collects some of the lowest federal corporate tax revenues as a share of GDP. A low-rate flat tax on the broad base of business value added, with minimal deductions, exemptions, exclusions or loopholes, would collect the requisite revenues while impeding prosperity the least. A low tax rate would give businesses little incentive to evade, avoid or otherwise not report taxable income. A lower U.S. corporate tax rate would lead to improved equity valuations by way of more companies locating in the United States, the companies that are here being more profitable, and increased employment leading to more money flowing into the stock market.

Notwithstanding the often-repeated conventional wisdom that “small business” is responsible for most employment growth, the modern scholarly literature finds that it is new (and perhaps young) businesses—startups—that contribute disproportionately to both gross and net employment creation. This paper examines the effect of new business firms (“startup businesses”) and net employment creation by those firms on state gross product, using a sample of 49 states for the period 1977 through 2010. Each net job created by startup firms is estimated to increase state gross product by almost $1.2 million in a given year. Policymakers should focus on both the ability of startup firms to establish themselves and to succeed, and the ability of startup firms to hire workers.

The independence of mandate holders is important to their ability to objectively fulfill their mandates, but they should also be accountable and subject to dismissal. Similarly, budgetary transparency and mandatory disclosure of sources of funding and other support are critical to maintaining the perception of objectivity and independence of the mandate holders.

Both the IRS scandal and Obamacare contain similar themes: government overreach, massive intrusions, and bureaucrats granted opportunities to abuse their power in arbitrary and harmful ways. The American people should not be subjected to either.

Subtracting President Obama’s relatively miniscule tax cuts from his massive tax increases shows he wants to raise taxes on net by $1.035 trillion over the next 10 years. This enormous increase would slow the economy and job growth. Fortunately, tax increases are unnecessary. As the Congressional Budget Office shows, tax receipts will surpass their historical average as a share of the economy by 2015 and remain above that level through the decade. Washington created its deficit and debt crisis because it is spending too much; not because it is taxing too little.

The Obama Administration’s Syria policy has been a strategic and moral failure. Although there remain strong reasons to avoid a U.S. military intervention, there are fewer and fewer excuses for failing to give the Syrian opposition the arms it needs to protect Syrians from the regime. If the U.S. fails to become more supportive of the opposition and more assertive in coordinating the efforts of its regional allies, then Syria’s slide toward Islamist extremism will continue to pose growing dangers to the U.S. and its allies.

The President’s 2014 budget arrived on April 10, more than two months past its legal deadline of the first Monday in February. In the budget, the President laid out his vision for his second term in office. The President’s vision is one of more government spending in areas better left to individuals and the states; higher taxes, especially on upper-income earners; and a continuation of policies that at best do not work, and more often than not harm the U.S. economy and Americans. Heritage Foundation economic and budgetary experts analyzed the President’s 2014 budget, offering their insights on a wide range of policy issues in an “immediate-reaction roundup” blog. This Backgrounder is a compilation of their contributions.

Opponents of missile defense argue that the missile defense system is unproven. They argue that its test record must be nearly perfect for the system to be considered proven and worthy of supporting. This is just not so, as the Polaris development shows. Failures are a natural part of any technology maturation process. The United States should not focus solely on whether an intercept occurred. Rather, it should strive to strike a balance between advancing the technology and validating its missile defense system. At a price of as much as $300 million per test, the focus on the advancement of the technology, pushing the design envelope of the tested systems, and making sure our engineers and scientists learn as much as possible from each test is very much worthwhile.

The U.S. and Turkey face growing threats from Syria’s civil war, Iran’s nuclear program, and Iraq’s renewed sectarian violence. All three issues require greater bilateral cooperation as well as multilateral cooperation from NATO allies, Israel, and Jordan.

Senate Bill 278, currently before the Alabama Legislature, seeks to set uniform prices and terms between beer suppliers and wholesalers by dictating the permissible provisions of their private contract. This legislation will have negative effects on product promotions and advertising. Such legislation operates to the benefit of one private party to the detriment of consumers.

Several Supreme Court cases have upheld the individual right to possess and carry firearms. Aspects of Maryland’s handgun regulations, nearly exact to those of Alabama, were recently declared unconstitutional by a federal district judge. The current Code of Alabama’s regulations regarding the right to carry a concealed weapon may infringe upon rights protected under the 2nd Amendment to the United States Constitution.

Those countries that divide the quotas into shares among their fishers create property rights to the right to fish for their nationals as individual quotas or ITQs. When the quotas are secure and transferable, consolidation of fleets takes place and fishing pressure is reduced. If member countries adhere to their national quotas, then ITQs become a property right to the expected returns from good management and controlled harvest. There is a catch, however, that is not good for the fish. Because these fisheries include the open seas, additional countries can join the fishery. Under UNCLOS these additional fleets are to be accepted as new members or affiliates so that all fishing states are made part of the same management scheme. Individual country quotas have to be recalculated and a smaller share distributed among their national fleets. This reallocation changes expectations among fishers, their incentives for conservation, and the security of the property rights they hold through their ITQs.

Losing a war is much easier than winning one. Before the United States enters Syria, it should ask itself a series of questions. Can it take out the regime of Bashar al Assad easily? Answer—most likely yes, in the manner that the “lead from behind” air war decapitated Muammar Gadhafi’s rule. Is the aim of an American-led intervention to foster a postwar consensual government? If so, post-bellum Libya reminds us that without Americans on the ground, Arab idealists usually go the way of the Mensheviks in Russia or of Abulhassan Banisadr’s secular socialists in Iran. In addition, Iraq warns us that putting U.S. ground forces into an Arab Middle East country could ensure some sort of constitutional succession—but most likely at material and moral costs that very quickly would be too high even for the present supporters who are calling for a “humane” intervention Syria.

Solving the sovereign’s dilemma in Indian Country won’t be easy, especially in light of the Hualapai controversy. On the bright side, tribes are training their judges and improving their judicial procedures. Some tribes are adopting uniform commercial codes and implementing legislation to better secure transactions with off-reservation partners. Less stringent requirements for waiving sovereign immunity would also help tribes bind themselves when dealing with developers. Since 1831, when the U.S. Supreme Court declared the relationship between tribes and the federal government to be that of “a ward to his guardian,” tribes have become more and more dependent on their guardian. Those tribes that can resist the temptation to extract wealth today for the sake of future growth have the best hope of gaining the wherewithal to break the shackles of dependency and become truly sovereign.

Just as no man is an island, no rogue can be utterly alone for long. A comforting thought in the long haul, this truth means that in the near-term, a rogue regime’s possession of nuclear arms leaves the United States and its allies little recourse other than some form of engagement, either diplomatic or armed.

No one has the secret of correctly valuing long-term assets like housing and equities. Markets are not very good at it. Governments are not very good at it either. But the tail risks of government miscalculation are far worse than those of market errors. In historical worst-case scenarios, market errors have lost us trillions of dollars. Government errors have cost us tens of millions of lives. The reason for this disparity is very simple. Markets are eventually self-correcting. “Eventually” is a slippery word here. Nonetheless, five years after the credit crunch, worldwide stock prices have fallen, house prices have fallen, hundreds of thousands of bankers have lost their jobs, and democratic governments have changed hands. That’s correction.

Besides the vicissitudes of the labor market, an additional factor contributes to the poor employment prospects of many college graduates. Too many have enrolled in college believing they could have four years of fun and graduate from any four-year college after majoring in any field — gender studies, sociology, ethnic studies — and obtain well-paying jobs easily. Unfortunately for them, the market for college graduates has changed. Offering a partial remedy, Senator Wyden, a Democrat from Oregon, and Senator Rubio, a Republican from Florida, have introduced legislation requiring colleges to report the salaries of their graduates who obtain jobs, and this would go some way toward a remedy.

Recent events inside Iraq and Syria have made the moral and strategic case for an independent Kurdistan stronger than ever. Likewise, circumstances have shifted such that Turkish acceptance of a peaceful Kurdish state is increasingly evident. The United States would be wise to seize this historic opportunity and lend its diplomatic weight to the Kurdish cause.

The importance of American manufacturing to the health of the national economy cannot be overstated: by itself, the U.S. manufacturing sector would be the tenth-largest economy in the world. Every dollar of manufacturing sales supports $1.34 in additional output from other business sectors. Given this economic reality, filling the human capital skills gap in the manufacturing sector over the next decade will be a critical challenge for fueling the continued expansion of the U.S. economy. As Americans struggle to find employment in one of the worst job markets in decades, they need to revise their thinking that manufacturing is an industry in decline. To the contrary, U.S. manufacturing is experiencing a robust turnaround, and career opportunities in manufacturing are better than in a generation.

An overwhelming skew toward liberals among the ranks of social psychologists likely accounts for the progress made by liberals in applying their discipline to policy-making and messaging — and the absence among conservatives leaves a clear deficit. Conservatives should be thinking now, not in 2017 or 2021, about building at least a small corps of social psychologists and behavioral scientists who could help the next conservative president govern as effectively as possible — and help him get elected in the first place. Perhaps if young conservative researchers knew that social psychologists and behavioral scientists were welcome at leading think tanks, polling shops, advertising agencies, and PR firms, they’d be more likely to study these disciplines in college and pursue them as a career. Ultimately, though, the real mark of success will be whether the powerful tools derived from social psychology and applied behavioral science help conservatives — from activists to officeholders — implement their vision for America.

Today the Left runs Washington. They want to replace the American Idea with the progressive state. They want to replace equal opportunity with equal outcomes. And they’re well intentioned, I might add. They’re trying to do good as they see it. Hard as it might be to admit, they’re speaking to a need—a need for security in a world of growing complexity. Before conservatives can win, we have to understand what we’re doing wrong. The fact is, we also have to speak to this need. We have to explain how too much government will weaken security—and how our agenda will increase security. Both the Left and the Right too often split the world into two halves: the individual and the government. They forget a key part of life—the part that gives real security. They forget society—that space in between. We can save the American Idea by saving that space for society.

There has been much fallout from the Cyprus affair. First, there has been a clear shift in Europe away from indiscriminant government (i.e. taxpayer funded bailouts) and protection of all creditors of failed and failing banks. While the Shadow Financial Regulatory Committee favors policies that would impose losses on uninsured creditors of a failed institution, the process by which the Eurozone got to that policy also had the consequence of calling into question the reliability of deposit insurance guarantees throughout Europe. It was a mistake the European Finance Ministers to support the proposed levy on insured deposits.

Rather than jousting for jurisdiction, it would be far better for swaps regulators in different venues to focus on criticizing and defending deviations from best practices that have developed in individual countries. The Shadow Financial Regulatory Committee proposes establishing a global regulatory forum in which swaps regulators would address two tasks. As in the Basel process, the first task would be to thrash out and articulate basic "principles" for swaps regulation and supervision that delegates from participating countries believe would promote liquidity and global financial stability. The second task would be to coordinate individual-country rule-making and enforcement.

Mainstream economists did not predict and cannot explain the ‘Great Recession’. Their ‘solutions’ have failed. Only the long-marginalised ‘Austrian’ economists saw that a boom built on excess money and credit must end in a bust. Trying to revive the boom is folly: we should cut tax and regulation to help business re-adjust to the new economic reality. The role banks as intermediaries between savers and investors should be reduced to increase both stability and growth. This can be achieved by supplementing the Basel rules with a requirement that banks hold more hard cash.

The U.S. Department of Health and Human Services has recognized that the Veterans Health Information Systems and Technology Architecture program has extensive benefits to hospitals looking to implement simple and effective IT solutions. The lack of proper human capital management in the Veteran Affairs Office of Information Technology is likely the reason for IT failures reaching into the billions of dollars. Veterans Affairs stands as a stark reminder that health care savings are rarely found through bureaucratic efficiency, one of the underpinnings of Obamacare.

The ultimate goal of tax reform should be creating an atmosphere where business can thrive and economic growth is possible while still generating revenue for the government to pursue its priorities. Growth won’t be instant, but a continued, consistent commitment to a system that won’t discourage the very things that will move North Carolina’s economy forward will most definitely benefit the state in the long run.

Over five million Americans are presently drawing unemployment insurance (UI) benefits. As a joint federal-state program, UI benefits and taxes vary widely by state. State taxation of unemployment benefits also varies. Of the 41 states that tax wage income, 6 states completely exempt unemployment benefits from tax (California, Maryland, New Jersey, Oregon, Pennsylvania, and Virginia). Two states partially exempt a fixed dollar amount of benefits from state income tax but tax the rest, following federal practice from 1982 to 1986. The remaining states fully tax unemployment benefits. On the one hand, unemployment benefits are one type of income and should therefore be encompassed by an income tax. Benefits are subject to federal income tax, and minimizing differences between federal and state definitions of taxable income reduces compliance costs. On the other hand, many beneficiaries are under significant financial stress and often do not expect to owe income tax on their UI benefits.

If the Chafee proposal, fully phased in, had been in effect on July 1, 2012, the snapshot date for our most recent State Business Tax Climate Index, Rhode Island would have ranked 30th best rather than 42nd best on the corporate tax component, and 44th best rather than 46th best overall (see Table). While not a dramatic improvement, Chafee’s proposal would build upon other positive tax and fiscal moves taken by Rhode Island.

The progressives and muckrakers undoubtedly had it right at the turn of the 20th century. Corrupt government and unregulated business foisted high costs and dangerous conditions on urban American. Forced by the muckrakers’ exposes, government adopted rules and procedures that led to tougher enforcement. But a century later these well intentioned regulatory reforms have morphed into rule bound, job killing, expensive and cumbersome processes, or even worse, systems captured by the few to erect barriers to entry for prospective competitors.

By e21 - Economic Policies for the 21st Century, e21 – Economic Policies for the 21st Century

Commentary, 05/15/2013

The debt-to-GDP ratio cannot grow indefinitely because eventually the cost of servicing public debt would end up exhausting all of national income. So even if one believes an incremental dollar of debt-funded stimulus would accelerate economic activity, there is likely to be some point at which cumulative deficits have consumed too much of future income. For example, without a single added dollar of national debt, the cumulative deficits of the past four years have already imposed future costs larger than the annual spending reductions agreed to in the 2011 Budget Control Act (including the sequester). Assuming interest rates of 5% – above but close to the historic average – the additional 35% of GDP in debt the federal government has accumulated since 2008 would cost future generations 1.75% of their gross income in perpetuity.

Newly elected officials arrive with differing backgrounds, priorities and degrees of commitment. They aspire to lead well-run enterprises, but most get elected based on the policies they advocate, not their operational experience. Yet these aspirations face passive if not active resistance from within a bureaucracy that values the routine over disruptive innovation; that does not promote based on performance, let alone efficiency; does not terminate for bad performance and provides little support for the risk taker. Only leadership can counter this syndrome. We define leadership here as rhetoric combined with changes in approach that include creating a culture of savings, inviting private sector operators to participate in government and a willingness to listen to a broad array of individuals. These changes give public employees the support and incentives they need to improve and create small groups explicitly charged with driving change.

Economic analysis is equally applicable to market and political decision making. It indicates that there is both market failure and government failure. It is long past time that this realism be incorporated into mainstream economics. George Stigler once remarked that a person who considers only market failure is like the judge of a singing contest who immediately declares the second contestant the winner after hearing the performance of the first. This is precisely what happens when mainstream economics treats government as a corrective device and continues to exclude public choice analysis. It is time for the profession to consider the second singer.

Part One of Poverty and Progress assesses poor-country realities by tracking growth through globalization, the rapid rate of change in standard-of-living indicators over the last half century, and in how political economy affects economic growth rates in developing countries. In Part Two, Lal examines the myths and confusion about poor countries, including calculations that exaggerate the extent of poverty; overstated claims made on behalf of microfinance; the resurrection of discredited theories, such as vicious circles of poverty; and the need for massive foreign aid to save Africa. Unique among books that have emerged in recent years on world poverty, Poverty and Progress directly confronts intellectual fads of the West and dismantles a wide range of myths that have obscured an astounding achievement: the unprecedented spread of economic progress around the world that is eliminating the scourge of mass poverty.

This book reviews nine Supreme Court cases and decisions that dealt with monetary laws and gives a summary history of monetary events and policies as they were affected by the Court's decisions. Several cases and decisions had notable consequences on the monetary history of the United States, some of which were blatant misjudgments stimulated by political pressures. The cases included in this book begin with McCulloch v. Maryland in 1819 and end with the Gold Clause Cases in 1934-35. Constitutional Money examines three institutions that were prominent in these decisions: the Supreme Court, the gold standard, and the Federal Reserve System. The final chapter describes the adjustments necessary to return to a gold standard and briefly examines the constitutional alternatives.

IRAs, 401(k)s, and other tax-advantaged savings vehicles are major improvements over the tax code’s basic treatment of savings, but they maintain much of the savings bias in the tax code, because annual contributions to them are capped. And savers may only withdraw the money after turning 59 ½ or face penalties. Taxpayers wanting to save above these limits (or those who wish to withdraw for purposes other than retirement, such as buying a home) face the tremendous bias imposed by taxes for doing so. Congress should allow taxpayers to save as much as they can every year tax-free for any purpose with no cap on the total value of their savings. They would pay tax only when they withdraw their savings to spend for whatever purpose they choose. As an intermediate step, rather than institute President Obama’s misguided cap, Congress should raise—or, better yet, eliminate entirely—the annual caps on contributions to retirement savings plans.

Pakistan’s first successful transition from one democratically elected government to another is an important marker for the evolution of democracy in the country. However, it will not make U.S. efforts to garner Pakistani counterterrorism cooperation any easier. The U.S. should continue to use a combination of incentives and disincentives to encourage Pakistan to play a more active and effective role in countering extremists on its territory.

Congress is once again preparing to take up the “farm bill,” a multi-billion-dollar tangle of agriculture subsidies, welfare payments, and environmental patronage. The time is particularly ripe to create meaningful reform and reduce the excessive burden imposed on taxpayers and consumers. Farmers are pulling in record levels of income and carrying record-low levels of debt. Agriculture policy must be freed from the politics of welfare and the blight of farm subsidies, price controls, and tariffs that do more harm than good.

The EU mistakenly absolves Hezbollah’s political leadership for the crimes of its terrorist wing. A change in the EU’s ostrich-like policy is long overdue. European countries can pull their heads out of the sand and designate Hezbollah as a terrorist organization without waiting for the EU to do so. This would enable a long-overdue crackdown on the group’s fundraising, recruitment, and operational networks that would make the world safer for Europeans and Americans while helping to stabilize the volatile Middle East. Only through concerted action by both the U.S. and its European partners will the Euro–Atlantic region become safer from Hezbollah’s growing threat.

Instead of taking positive steps to reassert U.S. leadership in Europe, and to build on the U.S. ties with its best allies in Europe–particularly Britain, which is outside the eurozone—the Obama Administration has strongly backed the European Union in its destructive assault on national sovereignty. This is an approach that is guaranteed to alienate Britain, weaken U.S. influence in Europe, and leave the U.S. with fewer, poorer, and less capable democratic allies. The Administration’s disdainful treatment of Britain is not just wrong in itself. It also stands at the very center of its inability to develop a grand strategic approach to Europe and its decision to outsource the defense of its interests in Europe to the EU. As the failure of the eurozone becomes ever more obvious, it is time to end this policy and to rebuild close ties between the U.S. and Britain.

In response to a court martial in which a reviewing officer overturned a jury’s verdict of guilty of sexual harassment, Secretary of Defense Chuck Hagel has proposed: eliminating the discretion of a convening authority to change the findings of a court-martial, except for minor offenses that would not ordinarily warrant a court-martial; and requiring a convening authority to explain in writing any changes made in court-martial sentences, as well as any changes in findings involving minor offenses. Congress should give the second part of the Secretary’s proposal strong consideration. But before acceding to the first part by eliminating a convening authority’s discretion to overturn a conviction, Congress should fully understand the unique nature of the military criminal justice system, the role of a convening authority, and the potential consequences of changing the law.